By Mark Drajem and Jonathan Stearns Oct 7, 2014 5:00 AM GMT+0700
The U.S. is helping Ukraine (UADPRYOY) plan how to keep homes and businesses heated during the winter months while the European Union’s incoming chief diplomat said the government in Kiev may be facing a “nightmare” as freezing temperatures approach.
Fighting continued in several parts of eastern Ukraine amid moves to establish a buffer zone aimed at cementing a wobbly truce that went into effect a little more than a month ago between government forces and pro-Russian separatists.
“We have a team in Ukraine looking at the immediate issues of this winter,” U.S. Energy Secretary Ernest Moniz said at the Council on Foreign Relations in New York yesterday. “The issues are, unfortunately, challenging.” Analysts are looking at ways of shifting away from natural gas to other fuels for home heating, he said.
Ukraine is bracing for the onset of winter, when temperatures at times drop below minus 20 degrees Celsius (minus 4 degrees Fahrenheit), with Russian gas supplies shut off and the energy infrastructure damaged by the fighting that has engulfed the country’s easternmost regions. The fuel shortage has already limited access to hot water.
Winter ‘Nightmare’
In Brussels, Italian Foreign Minister Federica Mogherini said yesterday Ukraine faces a “winter that is going to be probably a nightmare from the economic point of view, from the energy point of view.” Mogherini was speaking at a hearing on her nomination to become the EU’s foreign policy chief.
In Kiev, President Petro Poroshenko met with U.S. Assistant Secretary of State Victoria Nuland and discussed the need for “urgent measures” to avoid a humanitarian disaster in the eastern part of his country with winter coming on, according to the president’s website. Poroshenko spoke of restoring supplies of natural gas, electricity and food products.
Ukrainian military spokesman Andriy Lysenko told reporters in Kiev yesterday that one Ukrainian soldier had been killed and 13 wounded in skirmishes over the previous 24 hours. There was fighting in Donetsk where separatists made “another failed attempt to storm” the airport, he said, adding that the airport remains under the control of government forces and is still operational.
Cease-Fire
While a cease-fire signed Sept. 5 has eased the bloodshed in Ukraine’s easternmost regions, violence has continued on a smaller scale. The conflict has killed at least 3,627 people and wounded 8,446, the United Nations estimates. Russia denies U.S., European and Ukrainian allegations that it’s supplying arms to the rebels and has deployed troops, tanks and artillery in the Donetsk and Luhansk regions.
NATO Secretary General Jens Stoltenberg said yesterday on a visit to Warsaw that the alliance is “concerned” about cease-fire violations and that he hopes “Russia will use its influence” to ensure the truce holds.
Seven civilians were killed and 20 were injured in Donetsk over the weekend, the city council said on its website. Ukrainian military positions near Novoazovsk came under mortar fire and the government is observing an increase of pro-Russian militants near Mariupol on the Sea of Azov, Lysenko said.
Fastest Pace
Inflation in Ukraine quickened to the fastest pace since March 2009 as the conflict in the nation’s east damaged the hryvnia and triggered a recession.
Consumer prices rose 17.5 percent from a year earlier in September, the statistics office in Kiev said yesterday. That’s more than the 15.3 percent median estimate of four economists in a Bloomberg survey. Prices increased 2.9 percent from August.
The hryvnia, which has tumbled 36 percent this year, the most among 176 currencies worldwide tracked by Bloomberg, was little changed at 12.95 per dollar at 5:43 p.m. yesterday in Kiev.
In Moscow, the Micex Index rose 2.4 percent to 1,418.15 at the close yesterday. The ruble fell below 40 per dollar for the first time before gaining 0.3 percent to 39.847.
Ukrainian troops are preparing to set up a buffer zone to shore up the truce between them and the pro-Russian separatists they’ve been battling for half a year.
Ukraine blames cease-fire violations on rogue elements among the rebels. The separatists are “strictly adhering” to the truce and only open fire when fired upon, the self-proclaimed Donetsk People’s Republic said on its website.
International Commission
An international commission representing Ukraine, Russia and the Organization for Security and Cooperation in Europe started work in the port of Mariupol Oct. 4. Its main task is to set up the boundaries of the 30-kilometer-wide (19-mile) demilitarized area, according to Lysenko, who said fighting stopped monitors from beginning work elsewhere in the area.
A cease-fire monitoring center also opened in Debaltsevo, a Ukrainian-held enclave situated 20 kilometers inside rebel-held territory between Donetsk and Luhansk.
The buffer zone, which will span 320 kilometers from Russia’s eastern border to the town of Novoazovsk on the Azov Sea, should also include the Donetsk airport and other locations still subject to fighting, Andrei Kelin, Russia’s permanent representative to the OSCE, told Rossiya 24 TV Oct. 3.
French-German negotiations on sending surveillance drones to eastern Ukraine to monitor the cease-fire are “relatively far advanced,” German Foreign Ministry spokesman Martin Schaefer told reporters yesterday in Berlin.
Angola, Africa’s biggest oil producer after Nigeria, plans to increase output to 2 million barrels a day by 2017, according to Finance Minister Armando Manuel. That would be two years behind an earlier target.
Angola will budget next year for oil prices from $88 to $92 a barrel, said Manuel, who is urging the Organization of Petroleum Exporting Countries to take steps to avoid more declines. Brent is down 16 percent this year in London, the most since a 51 percent drop in 2008.
Manuel’s comments in an interview in Washington D.C. yesterday indicate a delay in meeting a target expressed repeatedly by Petroleum Minister Jose Maria Botelho de Vasconcelos. He has said the goal of 2 million barrels a day will be reached in 2015, helped by projects including Eni SpA’s West Hub in Block 15/06, which is scheduled to begin this year.
“Although we face a slowdown in prices, the new fields may offset the current stream of the oil sector and ensure that growth doesn’t get affected,” Manuel said. “I expect prices to maintain a suitable level that don’t expose the country to a deeper vulnerability.”
Angola pumped 1.87 million barrels a day last month, according to a Bloomberg survey of producers and analysts. The West African nation’s output fell to a seven-year low earlier this year as some fields peaked and maintenance constrained other sites, Ben Payton, a senior Africa analyst at Maplecroft, a risk adviser, said in May. The development of new fields may take three years, he said.
Dragon Oil Plc (DGO) proposed a 492 million-pound ($789 million) cash offer for Petroceltic International Plc (PCI) to add exploration and output in North Africa and Kurdistan.
Dragon Oil, backed by Dubai’s state oil company and with production in Turkmenistan, is in talks on a 230 pence-a-share offer, a 29 percent premium to the last closing price, Dublin-based Petroceltic said today in a statement. The target’s board is prepared to recommend the offer subject to shareholder talks.
“It looks a good deal from Petroceltic’s perspective,” David Round, a BMO Capital Markets analyst who has an outperform rating on the stock, said by e-mail. “A lot of the smaller exploration and production companies are looking for an exit at the right price and this price looks pretty reasonable.”
Petroceltic jumped 22 percent to close at 218.50 in London trading on the Alternative Investment Market. That’s the biggest gain since April 2009. Dragon Oil declined by 2.3 percent to 561 pence in London.
Buying Petroceltic would widen the scope of Dragon Oil’s operations to Algeria, Egypt and northern Iraq. Chief Executive Officer Abdul Jaleel Al Khalifa said in August he saw Egypt, where Dragon already has an exploration license, as a prime area for growth. It expects to produce 100,000 barrels a day by the end of next year in Turkmenistan, giving it the cash for deals.
Petroceltic had planned to start trading on London’s main stock exchange in July. The company sold part of its stake in an Algerian oil license in October last year. There is no certainty a firm offer will be made, Dragon said in a separate statement.
Gasoline rose in New York after Irving Oil Ltd.’s Saint John refinery, a plant in Canada that sends more than half its output to the U.S. Northeast, was said to keep its largest fluid catalytic cracker shut for almost two months of unplanned work.
The Saint John refinery in New Brunswick may keep the cracker, which breaks down vacuum gasoil to produce fuel including gasoline and diesel, offline for repairs through late November, a person familiar with the work said today, asking not to be identified because the information isn’t public. Gasoline futures for November delivery rose 3.47 cents to settle at $2.4132 a gallon. Spot gasoline in New York Harbor gained 3.13 cents to an 11-cent premium versus futures.
The shutdown is the latest in a series of outages that have plagued the cracking unit at Irving’s 298,800-barrel-a-day refinery this year, shrinking the refinery’s production amid maintenance on other units. The disruptions threaten to tighten supplies at New York Harbor, the delivery point for futures traded on the New York Mercantile Exchange, and further boost prices, said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
“Irving is one of the biggest refineries in that part of the world, so when Irving goes down, it just messes up the entire system,” Flynn said by telephone today. “It’s a surprise but not a shock because there have been reports about how they’ve been having issues for a while.”
‘Definitely Bullish’
Gasoline futures have slumped by more than 15 cents a gallon in the past month as demand wanes following the summer driving season and oil prices slide. Retail gasoline in the U.S. is dropping toward $3 a gallon, according to the Heathrow, Florida-based motoring club AAA.
“In the short-term, these problems at Irving are definitely bullish,” Flynn said. “In the long-term, it’s work that needs to be done, and I guess if you’re going to shut down a refinery for extended maintenance, this is the time to do it.”
Irving took two fluid catalytic crackers out of service last month for work that, at the time, was expected to last up to six weeks, a person familiar with operations there said Sept. 12, while asking not to be identified because the information wasn’t public. The plant also shut a crude unit Sept. 16 and a sulfur plant on Sept. 20, Louisville, Kentucky-based energy data provider Genscape Inc. said.
The refinery was scheduled to restart the No. 3 crude unit and the smaller of its fluid catalytic crackers by Oct. 10, IIR Energy said today.
By Jim Polson Oct 6, 2014 10:53 PM GMT+0700
Mikhail Khodorkovsky was freed in December and has been living in exile in Switzerland.
It’s hard to imagine Russian President Vladimir Putin surrendering power peacefully, said Mikhail Khodorkovsky, the one-time oil tycoon who spent a decade in prison.
Putin missed his chance to give up power in a peaceful transition, Khodorkovsky, 51, said at the Council on Foreign Relations in New York today. Putin began his current term in 2012, after serving as president from 2000 to 2008 and prime minister from 1999 to 2000 and 2008 to 2012.
Once Russia’s richest man with a fortune of $15 billion, Khodorkovsky was convicted of tax evasion, money-laundering and oil embezzlement in 2005. He has maintained his innocence, saying the charges against him were retribution for financing political parties that opposed Putin, an allegation the government denies.
His comments come as Russia endures sanctions from the U.S. and European Union for its annexation of Crimea and investors pull money from the nation. Khodorkovsky, who was freed in December and has been living in exile in Switzerland, said last week that Russia is nearing an economic crisis similar to the one that preceded the 1917 revolution that deposed the czar and brought the Bolsheviks into power.
“We don’t follow the speeches and appearances of Mr. Khodorkovsky,” Dmitry Peskov, a spokesman for Putin, said by phone today. “He spent so much time in prison that he lost touch with reality. He should prefer to live in this country. He doesn’t have the moral right to read us lectures.”
Elections 2016
Khodorkovsky, who has re-established his Open Russia foundation to advocate for a “civil society,” said today he wants to help independent candidates and monitor polling in 2016. Asked about his interest in running for president, he said Russian reforms were needed to develop separation of powers and those who did so would need to step aside and let others run the country.
The recent arrest of billionaire Vladimir Evtushenkov and a legal campaign to nationalize his oil company, OAO Bashneft, has spurred feuds among Putin’s inner circle, according to five officials who asked not to be identified because the discussions are private.
Herman Gref, a former economy minister who leads the state-run OAO Sberbank, has called the case “a tragedy.” Russia “can’t motivate people with the Gulag,” he said at a forum last week. Gref has also compared the current Russian economy with the era when the Soviet Union broke apart.
“The fact that he can allow himself to utter these ideas publicly shows that Putin doesn’t consider this much of a threat,” Khodorkovsky said. “Putin is right -- economics is on the back burner.”
Yukos Dismantled
Net outflows from Russian assets totaled $75 billion in the first half of 2014, compared with $61 billion in all of last year, data from the country’s central bank show.
Yukos Oil Co., Khodorkovsky’s company, was dismantled and its assets were sold mostly to state-run OAO Rosneft (ROSN) to cover $27 billion in back taxes after his imprisonment. Yukos’s market value peaked at $35.7 billion in October 2003. Khodorkovsky had a fortune of $15 billion in 2004, according to Forbes magazine.
Oct. 3 (Bloomberg) -- President Vladimir Putin won’t be swayed by sanctions over Ukraine because he doesn’t allow such pressures to affect his decisions, said Igor Sechin, head of OAO Rosneft, Russia’s biggest oil company. Sechin, who’s worked with the Russian leader for more than two decades, was speaking in a Sept. 26 interview with Bloomberg Television's Ryan Chilcote on a research ship traversing the Kara Sea in the Arctic region. (This report is an English translation of Sechin's remarks in Russian and is an excerpt. Source: Bloomberg)
Russia’s wheels of power are grinding to a halt.
That’s the assessment of five officials close to President Vladimir Putin, who say that a struggle at the heart of his inner circle is slowing decision making as sanctions squeeze the economy. With Putin focused on foreign policy, rival factions are battling for influence, said the people, who declined to be identified discussing internal issues.
One group, centered on Prime Minister Dmitry Medvedev, is concerned about Russia’s increasing alienation from the global financial system, said the officials. The other, which includes heads of state companies such as Igor Sechin of OAO Rosneft (ROSN) and veterans of the security services, favors greater state control over the economy, they said.
Russia’s ruling elite is convulsing as the economy careens toward recession, the ruble hovers near a record low and the conflict in Ukraine pushes the country deeper into a standoff with the U.S and its allies. With oil, Russia’s largest export, at a 27-month low and banks increasingly turning to the state for funding, there’s less money to go around.
Waging Financial War
“The long-running conflict between rival pro-Putin camps has elevated to war,” said Stanislav Belkovsky, a Kremlin adviser during Putin’s first term who heads Moscow’s Institute for National Strategy. “The elite are fighting for a shrinking pool of assets.”
‘Absolutely Wrong’
The president’s spokesman, Dmitry Peskov, said the disputes among officials don’t affect the efficiency of governing and it’s “untrue” to say that Putin is too busy to address urgent economic issues.
“There have always been disputes,” Peskov said by phone. “There are disputes and there will be. But to say that there’s an escalation is absolutely wrong.”
Heightening the feud between the rival groups is the arrest of billionaire Vladimir Evtushenkov and the legal campaign by prosecutors to nationalize his oil company, OAO Bashneft (BANE), according to the officials.
Evtushenkov, confined to his Moscow mansion since Sept. 16 on allegations of money laundering, is closely aligned with Medvedev and his allies, according to the people. They are at odds with the “siloviki,” a group of powerful policymakers that includes men like Putin’s chief of staff, Sergei Ivanov, who share a security service background and have worked with the president for decades.
Khodorkovsky, Yukos
Evtushenkov, whose OAO AFK Sistema (SSA) holds stakes in companies ranging from Bashneft to cellular operator OAO Mobile TeleSystems (MBT), is the richest Russian to face criminal charges since Mikhail Khodorkovsky. That prosecution led to more than 10 years of jail time and the dismantling of his Yukos Oil Co., which once had a market value of more than $36 billion.
“Medvedev will lose this battle and Bashneft will go the way of Yukos,” Belkovsky said.
Medvedev’s spokeswoman, Natalya Timakova, declined to comment on the Evtushenkov case or on relations between top officials. Sistema’s press service declined to comment.
Khodorkovsky, speaking at the Council on Foreign Relations in New York today, said the continued use of the court system as a political tool demoralizes Russians. He also said that it’s hard to imagine Putin, after 15 years in power, stepping aside in a peaceful transition.
Evtushenkov’s legal troubles, like Khodorkovsky’s before him, show how damaging the conflict within the power structure can be for the losing side, said Olga Kryshtanovskaya, a sociologist studying the country’s elite at the Russian Academy of Sciences. His fortune has tumbled 70 percent since January to $3.1 billion, according to the Bloomberg Billionaires Index.
State ‘Offensive’
“State corporations are on the offensive against private business,” Kryshtanovskaya said. “There is a deficit of resources. They need resources and Putin needs loyalty and controllability.”
Officials, already divided over Ukraine, are now keeping their heads down, waiting to see how the case against Evtushenkov plays out and who might be next, the people said.
Lawyers for Evtushenkov, 66, say he’s innocent of the charges, which relate to the privatization of Bashneft. Sistema completed its acquisition of the oil producer in 2009, when Medvedev was president, from companies controlled by the son of the former leader of Russia’s Bashkortostan region, where Bashneft is based.
Putin tried to assuage investors concerned that the case may be a prelude to a wider campaign to regain state assets, saying at a forum in Moscow on Oct. 2 that there won’t be a “mass review” of privatization.
Maneuvering Room
The five officials, who spoke after Evtushenkov’s arrest and before Putin’s comments on asset sales, said the gridlock has made it almost impossible to implement policies needed to steer the economy away from recession and adjust to sanctions. The U.S. and the EU have all but closed their debt markets to Russian companies, which has stoked capital outflows and driven stocks, bonds and the ruble lower.
The ruble sank 14 percent against the dollar in the three months ended Sept. 30, the worst quarter since 1999 and the biggest drop among global currencies monitored by Bloomberg. The dollar-measured RTS Index of stocks fared even worse in the period, falling 18 percent for the worst quarter in three years.
The benchmark Micex Index (INDEXCF) of 50 stocks rose 2.6 percent as of 6 p.m. in Moscow, heading for the biggest gain in a month. The ruble strengthened 0.1 percent to 39.91 per dollar.
Russia may be slow to react to economic issues because Putin is preoccupied with foreign policy and Medvedev, a former corporate lawyer, has become indecisive, two officials said.
That leaves room for the power brokers to maneuver.
‘A Myth’
Sechin, one of Putin’s closest allies, was his deputy chief of staff and Rosneft’s chairman when most of Yukos’s assets were seized and sold off, helping turn the company he now runs into the world’s largest traded oil producer by output.
Sechin, a Soviet military translator in Angola in the 1980s, denied reports including in the Vedomosti newspaper that he orchestrated the Evtushenkov case in a bid to gain control over Bashneft, one of the country’s fastest-growing oil companies. Sistema had planned to raise $1 billion or more selling Bashneft shares before prosecutors froze the company’s stock and filed suit to return them to the government.
“It’s a myth” Sechin, 54, said in a Sept. 26 interview on a research ship in the Arctic, where Rosneft just struck oil. “Some agencies have a method: distraction with a red herring, and in this case the red herring is me.”
Sechin drew a parallel between the Bashneft investigation and one involving Croatia’s largest energy company, INA Industrija Nafte d.d. That resulted in several criminal cases, including against a former de facto head of state, Ivo Sanader, who was convicted of bribery and abuse of power.
‘Dire Situation’
“No one is saying that this situation has destroyed the investment climate in Croatia,” Sechin said. “Just the opposite, some heads of state bodies are held, investigations are continuing. And this market is considered highly transparent, lawful and safe for business. I think it’s necessary to treat this situation this way.”
As for Medvedev, Sechin said “the government is headed by a respected prime minister with immense experience.”
Yevgeny Yasin, a former economy minister who is now an academic adviser at the Higher School of Economics in Moscow, said the infighting is being fueled by the sanctions and the “overall crisis” in the economy.
“This is creating a dire financial situation, particularly for state companies friendly to Putin, which are now vying for shrinking state resources,” Yasin said.
‘Statists, Rationalists’
At the top of that list is Sechin’s Rosneft, which in August asked the state for as much as 1.5 trillion rubles ($38 billion) of aid, a senior official with direct knowledge of the request said at the time. The company, which pumps 40 percent of Russia’s oil, is heavily indebted and sanctions bar it from western markets for all but short-term debt.
With issues related to Ukraine taking up most of Putin’s time, Sechin and the other Putin loyalists who run major state holdings, such as Rostec, OAO Sberbank (SBER) and VTB Group, are compensating themselves for being hit with sanctions by extending their dominance over key areas of the economy, said Yevgeny Minchenko, director of the International Institute of Political Expertise in Moscow.
When Putin came to power at the end of 1999, state companies accounted for about 30 percent of the economy, according to BNP Paribas SA. (BNP) Now the share is more than half.
Unlike Putin’s first two terms as president, when Medvedev and other “economic rationalists” had more freedom and growth averaged 7 percent, this cabinet is dominated by “statists” who want to expand the state’s role in the economy, according to Masha Lipman, an independent political analyst in Moscow.
“When there’s a clash between economic efficiency and rationalism and control and sovereignty, Putin always opts for the latter,” Lipman said. “The desire of the statists to be fully in charge has intensified. This trend has become irreversible. Medvedev is at risk and removing him as premier would take away the last defense of the rationalists.”
Chevron Corp. (CVX) agreed to sell a 30 percent stake in a venture to develop oil and natural gas from Canada’s Duvernay shale to Kuwait Petroleum Corp., giving the Mideast producer a foothold in a top North American play.
Chevron, the second-largest U.S. oil and gas producer, said the $1.5 billion purchase price includes cash and an agreement to contribute to the venture’s capital costs. Chevron has drilled 16 exploration wells in the area so far, the San Ramon, California-based company said in a statement today.
The Duvernay area in Alberta is among the most promising shale opportunities in North America. So far, wells in the region have proven more expensive and taken longer to drill than similar shale formations in the U.S., Tudor Pickering Holt & Co. said in a research note today.
There’s “still a lot of wood to chop” in the Duvernay, with per-well costs potentially coming down by $1.5 million, the Houston-based investment bank said in a separate note Oct. 2. More sophisticated drilling by larger companies “may allow year-round drilling and drive material cost saving.”
Chevron’s move comes as other Duvernay shale holders such as Athabasca Oil Corp. (ATH), Penn West Petroleum Ltd. (PWT), Trilogy Energy Corp. (TET) and Talisman Energy Inc. (TLM) explore partnerships. Talisman, whose second-largest shareholder is billionaire Carl Icahn, sees a joint venture in Duvernay as an opportunity to boost shares.
The Duvernay, in central Alberta, holds an estimated 443 trillion cubic feet of gas and 61.7 billion barrels of oil, according to a report last year by the Energy Resources Conservation Board.
Traditional Drilling
Kuwait has relied on traditional drilling while hydraulic fracturing and horizontal drilling have helped the U.S. unlock oil and gas reserves in shale plays. The Kuwait Oil Co. has identified a shale gas deposit and was planning to develop the resource soon, Chairman and Managing Director Sami al-Rushaid said during a conference last year without disclosing any details.
Chevron’s deal with Kuwait appears to “be at a good price,” said Peter Hutton, a London-based analyst for RBC Capital Markets who rates Chevron a hold and owns none. The sale will reduce Chevron’s cash burn as it invests heavily in new developments through 2017, Hutton said today in a note to clients.
RBC assumes Chevron will sell $4 billion of assets this year, reducing cash burn to $7.2 billion.
Chevron will keep a 70 percent share in the venture and remain the operator. It built its Duvernay holdings last year with the purchase of 67,900 acres from Alta Energy Luxembourg S.à.r.l. for an undisclosed price.
“We remain encouraged by the early results of our exploration program,” Jeff Shellebarger, president of Chevron’s North American unit, said in the statement.
The deal is between Chevron and Kuwait Foreign Petroleum Exploration, a unit of state-run Kuwait Petroleum which manages investments outside the Middle East country.
Natural gas for January in the U.S. Northeast is the most expensive in more than a decade on concern that pipelines may not be able to ship enough fuel, risking a repeat of last winter’s record prices.
Supplies in the so-called consuming east region, which covers the Northeast to the Midwest, are at the lowest seasonal level since 2000, government data show. Additional pipelines into New England from the Marcellus shale fields in Pennsylvania won’t begin service until at least late 2016.
Buying gas at current levels now may turn out to be a bargain. While the fuel in New York for January is selling at $13.60 per million British thermal units, more than nine times current prices, gas surged to a record $135 last January as frigid weather boosted demand beyond what pipelines could deliver.
“People are scared,” Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said Oct. 2 by phone. “The market is reflecting that despite prolific production growth in certain areas, the infrastructure has not been expanded to distribute that gas all the way across the country. There’s still a very real and very significant constraint.”
Pipeline construction has lagged behind production gains, stranding fuel that would otherwise move into storage. Nationwide, output will reach a fourth consecutive record this year, the Energy Information Administration forecast. That has damped benchmark futures prices on New York Mercantile Exchange, where contracts for January settled at $4.064 today.
New England
Gas for delivery to the Algonquin City Gates in New England next January was valued at $20.943 per million British thermal units on Oct. 3, a $16.86 premium to Henry Hub, according to Bloomberg Fair Value prices. A year earlier it was trading at a $8.498 premium.
The premium for Transco Zone 6 deliveries to New York City widened to $9.52 from $2.086 last year. It’s the biggest spread for this time of year in Nymex Clearport data going back to 2002.
“We have seen basis very strong the last few weeks,” Kate Trischitta, the director of trading at Consolidated Edison Inc.’s wholesale energy trading unit in Valhalla, New York, said in an Oct. 2 e-mail. “After what they experienced last winter, no one wants to be caught short. The reality of very cold periods or very high demand periods is you are going to have very big basis swings.”
Weather Forecast
Commodity Weather Group LLC in Bethesda, Maryland, said computer models are showing that the heating season in the lower 48 states will be colder than normal, though warmer than last year, according to a Sept. 24 note to clients.
Grid operators are also preparing for the possibility of another rough heating season.
ISO New England Inc., which saw the highest average gas prices in the country last year, expanded a reliability program that provides power generators with payments to cover costs for stockpiling oil and liquefied natural gas and boosts agreements to curtail demand. Gas wasn’t included in the plan’s debut last winter.
GDF Suez Gas NA said in August that its Distrigas of Massachusetts LLC unit will purchase LNG cargoes equivalent to 1 billion cubic feet. Gas from Gaz Metro LNG LP of Montreal will be trucked to utilities to meet inventory refill requirements.
Fuel Security
PJM Interconnection LLC, which serves more than 61 million people from Washington to Chicago, is considering an interim plan to address fuel security and capacity assurance for the winter. The largest grid in the U.S. had 22 percent of its generation offline on Jan. 7, when winter demand hit a record, compared with the historical average of 7 percent.
New England’s reliance on gas-fired generation will increase this winter after two plants are taken off the grid. Entergy Corp. will permanently shut its Vermont Yankee nuclear reactor in the fourth quarter. Footprint Power closed its 720-megawatt Salem Harbor plant, fueled by oil and coal, in May to convert it to burn gas.
While pipeline expansions have totaled more than $1 billion a year and will continue at that pace over the next three or four years, “infrastructure is still struggling to keep pace with the new production,” Chris Kostas, senior power and gas analyst for Energy Security Analysis in Andover, Massachusetts, said by phone Aug. 4.
New England hasn’t seen a new gas line in about 40 years, EIA data show.
“The premium that is building in the Midwest and Northeast deliveries suggest that consumers are increasingly aware of the problem with delivery,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in an Oct. 2 interview. “When we think about the advance in exploration and production, the ability to deliver gas has not kept pace.”
Petroliam Nasional Bhd., Malaysia’s state-owned energy company, said it may delay construction of its C$10-billion ($8.9 billion) Canadian liquefied natural gas project past 2030 unless proposed taxes are lowered this month.
The company, known as Petronas, needs the Canadian government and province of British Columbia to commit to lower taxes by the end of October to meet its mid-December target for a decision on the shipping terminal, Chief Executive Officer Shamsul Azhar Abbas said today in an e-mailed statement. The project is scheduled to start operating in 2018.
“In our last portfolio review exercise, the current project economics appeared marginal,” Shamsul said. “Missing this date will have the impact of having to defer our investments until the next LNG marketing window, anticipated in 10-15 years.”
Petronas and global rivals including Royal Dutch Shell Plc and Chevron Corp. are considering exporting gas from Canada’s Pacific Coast in liquid form to meet rising demand in Asia. They are pressing Canada’s westernmost province of British Columbia and the federal government for financial terms that would justify making multibillion-dollar investments.
Costs to develop liquefied natural gas, or LNG, are higher in Canada than elsewhere because of the tax proposals, pace of regulatory reviews and as local contractors charge more than in other countries, Shamsul said.
Tax Regime
Shamsul’s statement comes as British Columbia’s legislature prepares to start a new session today, during which the government has committed to finalizing an LNG-specific tax regime and also plans to introduce a policy on emissions from the shipping terminals.
British Columbia Premier Christy Clark is confident Petronas will decide to proceed with the project, known as Pacific NorthWest LNG, she said last week after meeting with Shamsul in Vancouver. The meeting followed similar warnings about the viability of the Canadian LNG project by Shamsul in an interview with the Financial Times of London.
The European Union is seeking to speed up the creation of a common energy market to help its shift to a low-carbon economy and boost security of energy supplies amid a natural-gas dispute between Russia and Ukraine.
Energy and environment ministers from the EU’s 28 member states are meeting in Milan today to help build a compromise before a summit on Oct. 23-24 where the bloc’s leaders are expected to decide on policies for 2030. The challenge for governments is to reconcile the need for cheaper and safer energy while accelerating the pace of emissions reductions.
“The completion of an integrated internal energy market will increase solidarity among member states, ensure safety of energy supplies and support integration of local renewable energy sources with a view to achieving energy self-sufficiency,” Italy, which currently holds the EU’s rotating presidency, said on its website.
The EU energy strategy includes developing interconnections, modernizing infrastructure and diversifying supply sources. Jean-Claude Juncker, the president-designate of the next European Commission, has vowed to move toward an energy union with forward-looking climate policy as a pricing dispute led to the cutoff of Russian natural gas supplies to Ukraine, the transit country for around 15 percent of the EU demand for the fuel.
The EU is trying to broker a compromise between the two nations and proposed a temporary deal to restore flows before winter. The next round of three-way talks will be set this week, the commission said in a statement on Oct. 3.
‘Big Step’
While Russian Energy Minister Alexander Novak on Sept. 26 called the EU “a big step” toward an agreement, Ukrainian Energy Minister Yuri Prodan said last week his country is “ready to reach an agreement, but not at the volumes and in the timeframes set by Russia.”
Concerns among EU governments over a possible disruption increase as Russia and Ukraine have been trading accusations of threats to EU-bound gas since July. European nations have already agreed to stress test of Europe’s energy system to help overcome a potential cutoff in the 2014-15 winter. Their leaders plan to decide on further measures to enhance the bloc’s energy security at the October summit.
“In the short term, the EU has the following overriding priority: to ensure that the best possible preparation and planning improves resilience to sudden disruptions in energy supplies, in particular during the coming winter,” the EU presidency said in a report sent to member states for discussion at today’s gathering.
Energy Isolation
The completion of the EU energy market by the end of 2014 and ending energy isolation of member states by 2015 remain “essential tools” for energy security, according to Italy. Investment challenges that member states face include the replacement of obsolete power plants and infrastructures to improve energy efficiency and lower energy costs.
The commission, the bloc’s regulatory arm, proposed in January the bloc adopt a binding goal to cut greenhouse gases by 40 percent by 2030, accelerating the pace of emissions reduction from 20 percent in 2020 compared with 1990 levels. It also recommended an EU-wide target to boost the share of renewables in energy consumption to 27 percent.
Energy efficiency is the third pillar of the strategy for 2030, to be decided by EU leaders later this month. The commission proposed nations increase energy savings by 30 percent by 2030 compared with 20 percent targeted for the end of the current decade.
Islamic State militants battled with Kurdish fighters for control of a strategic hill overlooking the Syrian town of Kobani on the border with Turkey, which the jihadist group has been besieging for three weeks.
A tank and some militants standing next to a heavy machine gun were seen on the hill of Mistenur to the east of Kobani, NTV reported yesterday, showing that Islamic State had taken the position. Ahmet Destan, a Kurdish villager, said by phone that the Kurds regained control of it at one point late yesterday amid heavy fighting. A female Kurdish fighter blew herself up in a suicide bomb attack against the jihadists on the hill, the Kurdish Firat news agency reported, saying that the battle continued into the night.
At stake for Kurdish forces defending the town, also known as Ayn al-Arab, is the fate of the autonomous region they set up in 2013 amid Syria’s civil war. Thousands have already fled across the border into Turkey since Islamic State launched its offensive to take the town last month.
Al-Qaeda's Heirs
“Islamic State is seeking two goals,” said Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai. “The first is to capture Kobani as part of border control, and to cleanse their territory of groups that will resist their” rule, he said.
Coalition Airstrikes
The militants are seeking to expand territory under a self-declared caliphate that stretches across much of northern Iraq and Syria. In a bid to stop their gains, fighter jets from the U.S. and its allies have struck Islamic State positions in both countries. Kurdish leaders have accused the coalition, and Turkey, of not doing enough to save Kobani from falling.
As the fighting closed in on Kobani, Turkey ordered residents of some nearby border areas to leave for their own safety. Dozens of explosions in Kobani throughout the day sent plumes smoke rising above the skyline, a live broadcast from the Turkish-Syrian border showed.
U.S. Central Command said in a statement the coalition had carried out nine strikes against Islamic State targets in Syria and Iraq yesterday and the previous day. The Pentagon has said that while it’s monitoring the situation in Kobani and has carried out strikes in the area, its efforts in Syria are mostly aimed at areas used as safe havens by Islamic State, while in Iraq it’s bombing in support of local forces.
‘Two Explosions’
Warplanes struck areas around Kobani at about 2 a.m. local time, Ismail Kaplan, local head of the pro-Kurdish People’s Democracy Party said by phone from the border town of Suruc. “I witnessed at least two explosions to the south of Kobani but don’t know the result,” he said.
Few civilians remain in the town, according to the U.K.- based Syrian Observatory for Human Rights, which is monitoring the conflict via local activists. The Islamic State fighters are equipped with tanks and heavy artillery, outgunning the lightly armed Kurds.
Syria’s Civil War
Syria’s Kurds have gained effective autonomy during the country’s three-year civil war, as central government authority over their region receded. The main Kurdish group there has links to the Kurdistan Workers’ Party or PKK, which has been fighting for autonomy in Turkey for three decades, and is classified as a terrorist group by Turkey and the U.S.
Kurdish politicians in Syria and Turkey have complained of a lack of international support, and say Turkey is seeking to quash the development of Kurdish self-rule in Syria. Turkey, which is pursuing peace talks with the PKK, says it will do whatever is in its power to stop a militant takeover of Kobani.
Turkey’s parliament on Oct. 2 renewed a mandate for military action across its southern borders with Syria and Iraq, citing the regime of President Bashar al-Assad as one of the threats, as well as Islamic State and the PKK. Turkey’s policy in Syria has focused on the removal of Assad since the early stages of the civil war.
Islamic State fighters advanced into Kobani near Turkey’s border with Syria amid street battles with Kurdish fighters who have been defending the town for three weeks.
After days of fighting outside Kobani, about 2,000 militants pushed into its eastern neighborhoods late yesterday, Turkey’s official Anadolu news agency reported. Islamic State controls about half the town, after unleashing the heaviest barrage of artillery fire since they began advancing in mid-September, Al Jazeera television said.
Kurdish authorities in Kobani called for support, saying that “thousands of civilians must be rescued from a massacre” for which the international community would be held responsible, the Kurdish Firat news agency reported. Most civilians have left the town, according to the U.K.-based Syrian Observatory for Human Rights, with tens of thousands escaping to Turkey in the past few weeks. Hundreds more fled yesterday as fighting reached the town, the Observatory said.
Al-Qaeda's Heirs
The militants are seeking to expand their self-declared caliphate that stretches across much of northern Iraq and Syria. The U.S. is leading European and Arab allies in a bombing campaign aimed at halting the group, though neither airstrikes nor the presence of the Turkish army just across the border from Kobani have deterred the Islamic State offensive.
U.S. Strikes
At stake for the Kurds defending the town, also known as Ayn al-Arab, is the fate of the autonomous region they set up in 2013 as the Syrian government lost control of large swaths of territory to rebels during the civil war.
Kurdish leaders say Turkey and the U.S.-led alliance aren’t doing enough to help them battle Islamic State, which is equipped with tanks and heavy artillery, outgunning Kobani’s lightly armed defenders.
U.S. Central Command said it carried out three airstrikes in Syria yesterday and the previous day, including one that destroyed two Islamic State “fighting positions” south of Kobani.
“Airstrikes in Syria primarily are focused on choking off the ISIL ability to conduct operations in Iraq,” Army Colonel Steve Warren, a Pentagon spokesman, told reporters in Washington yesterday, using an alternative acronym for Islamic State. He said that strikes have been carried out around Kobani “and we’ll continue to do so.”
Turkey has massed tanks and soldiers near the border. The government has pledged to join the U.S.-led campaign against Islamic State, without specifying what it will do. Turkey’s main goal in Syria has been the removal of President Bashar al-Assad’s regime.
‘Wait and See’
Syria’s Civil War
Prime Minister Ahmet Davutoglu told CNN television’s Christiane Amanpour that Turkish troops would only take part in operations in Syria if that was part of a wider U.S.-led strategy to target Assad, in an interview aired late yesterday.
The Syrian Kurds fighting in Kobani have links to the Kurdistan Workers’ Party, or PKK, which has been fighting for autonomy in Turkey for three decades, and is classified as a terrorist group by Turkey and the U.S.
That “may partly explain the Turkish wait-and-see approach to this battle,” Paul Sullivan, a Middle East specialist at Georgetown University in Washington, said in response to e-mailed questions.
Kurdish politicians say that Turkey is seeking to quash the development of Kurdish self-rule in Syria, amid concern it may set a precedent for its own Kurdish minority, who are negotiating with the government for wider rights.
LONDON, Oct. 6 (UPI) -- There are few reasons to think advancing the shale natural gas agenda in the United Kingdom will hurt land values, a government spokesman said Monday.
The British shale natural gas campaign is in its infancy, though the government said imports could be reduced dramatically if the fledgling sector succeeds.
The British National Farmers Union, which represents the business interests of nearly 50,000 groups across the agricultural sector, says land values could be reduced simply because of the negative attitudes toward hydraulic fracturing.
A spokesman for the British Department of Energy and Climate Change said other sectors of the economy are seeing few adverse impacts from underground cables or other infrastructure associated with conventional energy.
"Of over half a century of oil and gas production in the United Kingdom, there has been no evidence that house prices have been impacted and there should be reason for this to change for shale gas," DECC said.
Jonathan Scurlock, chief adviser for the NFU, said the group wants assurances nonetheless. Current policy regimes, he said, give the appearance that "landowner interests are being brushed aside," he told The Telegraph newspaper in London.
EDINBURGH, Scotland, Oct. 6 (UPI) -- Scotland's largest power station is getting "priced out of the market" at a time when power is needed most, the Scottish energy minister said Monday.
The Scottish government said it was frustrated with British policy decisions that translate to an extra $60 million per year in charges for its Longannet power station. Scottish Energy Minister Fergus Ewing said he wanted to meet immediately with his British counterpart, Ed Davey, to discuss what Edinburgh said were unjust transmission charges.
"The British government has completely failed to manage the electricity system properly and unfortunately the consequences are now being felt," Ewing said in a statement. "With a looming security of supply crisis, maintaining a charging regime that penalizes Scotland's energy generators is of great concern and simply makes no sense."
The Scottish government says its power systems account for 12 percent of the region's electricity capacity, but it pays 35 percent of the charges.
The Scottish government has put pressure on its British counterparts after a failed bid for independence. Ewing argued for a more diluted power structure when it comes to the energy sector.
HOUSTON, Oct. 6 (UPI) -- The steps needed to become one of the premier players in the Eagle Ford shale play in Texas is nearly complete, Forest Oil and Sabine Oil and Gas said Monday.
Forest and Sabine issued a joint statement saying their merger was on pace for completion this year.
"Forest has set the date for the special meeting of its shareholders to consider and vote on, among other items, the combination between Forest and Sabine as November 20, 2014, pending completion of the Securities and Exchange Commission's proxy statement review," the joint statement read.
Sabine and Forest announced an all-stock transaction in May that combines their assets in East Texas, including the Eagle Ford shale basin.
The U.S. Energy Information Administration says Eagle Ford shale is on pace to produce 1.48 million barrels of oil per day and 6.5 trillion cubic feet of natural gas per day in August, making it one of the premier shale reserve areas in the United States.
Renewables part of Turkish energy solution
ANKARA, Turkey, Oct. 6 (UPI) -- A project started nearly 40 years ago could help ensure energy security in Turkey through renewable reserves, a director said Monday.
Sadrettin Karahocagil, director of the Southeastern Anatolia Project, said renewable energy could stave off a future energy crisis in Turkey.
"There will be times when we can't find energy," he said. "[This project] is a solution, a preparation for those times."
The project, known by its Turkish acronym GAP, started life in 1977 as an agricultural project, but has since morphed into an energy and water project meant to stimulate the economies of Turkey's southeastern provinces.
Turkey is working to expand the use of renewable energy through projects backed by the U.N. Development Program. UNDP provides technical support for the $4.3 million GAP program.
Energy demand is on the rise in a Turkish economy that was shielded from much of the damage of the global economic recession. The International Energy Agency expects Turkish energy demand will double during the next decade.
LONDON, Oct. 6 (UPI) -- After receiving $350 million from the Egyptian government, British energy company BG Group said Monday the balance stands at around $1.2 billion.
BG Group said the Egyptian government paid down some of its debt as a result of raising funds specifically meant to address arrears in the oil and gas sector.
"While the group has been impacted by the reduction of liquefied natural gas exports from Egypt, the company continues to investigate options for increasing the supply of gas and is working with the government on resolving the outstanding receivable balance," it said in a statement.
Egypt last year accounted for 18 percent of the natural gas production for BG Group, making the company one of the largest producers in the country.
BG in January said the Egyptian government wasn't honoring agreements regarding its share of natural gas from Egyptian fields, saying diversions into the domestic market were higher than expected.
Only one cargo of LNG was taken from Egypt by BG for the second quarter. With declining upstream production, the company said it expects LNG operations in the country will be limited going forward.
MOSCOW, Oct. 6 (UPI) -- The value of the Russian ruble hit a historic low Monday when compared with U.S. and European currencies, the Russian Central Bank said.
It took just over 40 rubles to buy one U.S. dollar, or just over 50 rubles to buy a euro, in Monday trading, the bank said.
The bank said last week it was struggling to keep Russian inflation in check because of U.S. and European sanctions on Russian energy companies. Sanctions were imposed earlier this year because of Russian policies in eastern Ukraine, where pro-Kremlin rebels are fighting for more authority.
Exports of crude oil, petroleum products and natural gas account for nearly 70 of all Russian export revenues in 2013. The World Bank finds Russia's export-based economy leaves it vulnerable to geopolitical tensions.
Victoria Nuland, U.S. assistant secretary of state for the Bureau of European and Eurasian Affairs, said last week sanctions "can and will" be rolled back provided Russia respects Ukraine's sovereignty.
Nuland left Sunday for Kiev to discuss the status of the conflict in eastern Ukraine.
SAN RAMON, Calif., Oct. 6 (UPI) -- A portion of Canadian shale natural gas acreage was sold to a Kuwaiti energy company for $1.3 billion, the Canadian subsidiary of Chevron said Monday.
"This sale demonstrates our focus on strategically managing our portfolio to maximize the value of our global upstream businesses and is consistent with our partnership strategy," Jay Johnson, a senior vice president for upstream operations at Chevron Corp., said in a statement.
Chevron sold a 30 percent stake in the Duvernay shale play in Alberta to the Canadian subsidiary of Kuwait Foreign Petroleum Exploration Co.
The deal creates a bilateral partnership for the appraisal of shale resources spread out across more than 300,000 acres of the Kaybob area of the Duvernay shale.
"The transaction provides us an expanded relationship with a valued partner," Johnson said.
Chevron has drilled more than a dozen wells in the Duvernay shale, yielding an initial rate of production of 7.5 million cubic feet of gas.
Chevron last year said the encouraging results from the Duvernay shale created "a foundation for future growth in Canada."
WASHINGTON, Oct. 6 (UPI) -- The economies of East Asia will slow down, but still grow next year, though energy-hungry China will decelerate, the World Bank said Monday.
East Asian economies should experience a slower economic growth rate this year, but the pace picks up in 2015. For China, growth drops from 7.4 percent to 7.2 percent in 2015 as Beijing works to address financial vulnerabilities and build a more sustainable economic model, the bank said.
"East Asia-Pacific will continue to have the potential to grow at a higher rate -- and faster than other developing regions -- if policy makers implement an ambitious domestic reform agenda, which includes removing barriers to domestic investment, improving export competitiveness and rationalizing public spending," Axel van Trotsenburg, World Bank regional vice president, said in a statement.
In general, Asian economies are growing faster than the rest of the world, which in turn is tilting the poles of energy demand away from a North America relying more on its oil and gas reserves to satisfy its needs.
The International Energy Agency in its September oil market report trimmed oil demand growth for 2014 to 900,000 barrels of oil per day and 2015 to 1.2 million bpd.
IEA said the assessment was made "because of a pronounced slowdown in demand growth in the second quarter of this year and a weaker outlook for Europe and China."
New York (Platts)--6Oct2014/428 pm EDT/2028 GMT
US commercial crude stocks are expected to have increased 2.10 million barrels for the reporting week ended October 3, according to a Platts analysis and survey of oil analysts Monday.
The American Petroleum Institute will release its weekly report at 4:30 pm EDT (2030 GMT) Tuesday and the US Energy Information Administration is scheduled to release its weekly data at 10:30 am EDT (1430 GMT) Wednesday.
The EIA five-year average shows inventories typically rise this reporting week, increasing 2.39 million barrels.
US crude stocks are well-supplied by recent historical standards. The crude inventory was 356.64 million barrels for the week ended September 26, which was 1.26% above the EIA five-year average (2009-2013).
Analysts expect US refinery utilization rates to have fallen 0.38 percentage point to 89.42%. EIA data showed US refinery runs at 15.69 million b/d for the reporting week ended September 26. GASOLINE STOCKS SEEN FALLING
US gasoline stocks likely were 1.10 million barrels lower last week, according to analysts surveyed. The EIA five-year average shows inventories often decrease over this reporting week, falling 846,000 barrels.
At 208.49 million barrels for the reporting week ended September 26, US gasoline stocks were 1.97% below the five-year average of EIA data.
Gasoline stocks on the US Atlantic Coast -- home to the New York Harbor-delivered NYMEX RBOB contract -- were at 53.55 million barrels the reporting week ending September 26, which is 1.15% below the the EIA five-year average, after a 1.90 million-barrel draw.
Fluid catalytic crackers returning from maintenance last week included units at Marathon Petroleum's 84,000 b/d Texas City refinery, as well as Total's 174,000 b/d Port Arthur refinery.
Also in Texas, Phillips 66 shut the No. 40 FCC at the 146,000 b/d Borger refinery for a month-long maintenance period, while Petrobras shut its 106,000 b/d Pasadena refinery, which includes a 56,000 b/d FCC.
FCCs convert vacuum gasoil into gasoline and other high-end refined products. An FCC's closure could result in a gasoline stock drawdown, unless imports increase enough to offset production losses.
A rally in gasoline imports could be expected soon, as a rush of fixing last week drove Europe-US freight rates to their highest since March.
Clean tanker rates on a UK Continent-US Atlantic Coast route, basis 37,000 mt, averaged over Worldscale 132 last week, up from a 30-day moving average of just under w110.
US distillate stocks are expected to have decreased 800,000 barrels over the latest reporting week. The EIA five-year average shows US distillate stocks typically fall 1.94 million barrels this reporting week.
The amount of distillates carried by vessels departing the US for Europe fell 130,000 mt last week to 490,000 mt, according to Platts cFlow ship-tracking software.
Rio de Janeiro (Platts)--6Oct2014/222 pm EDT/1822 GMT
Brazilians will not only head to the polls to vote for president in a second-round runoff October 26, they'll also select which energy policies can best help Latin America's largest country tap some of the world's biggest recent oil discoveries.
President Dilma Rousseff and the ruling Workers' Party platform of heavy state involvement in the economy will face off against challenger Aecio Neves, the pro-business scion of a powerhouse family in Brazilian politics. The two candidates hold sharply different views on what Brazil's newfound oil wealth means for Brazil and the role state-run oil company Petrobras will hold in development of the crude riches.
Government policies involving Petrobras and a political scandal involving overbilling at a refinery under construction by the company that generated alleged kickbacks to Workers' Party allies have dominated the campaign. The accusations of corruption and mismanagement at Petrobras come amid plans for the company to spend $221 billion through 2018 to develop Brazil's subsalt, a offshore oil frontier that is estimated to hold more than 50 billion barrels of recoverable crude.
ROUSSEFF, NEVES DIFFER ON ENERGY POLICIES
Brazil's crude oil production is expected to soar in coming years because of the subsalt windfall, with Petrobras estimating output of 3.2 million b/d by 2018 and 4.2 million b/d by 2020.
Production, however, has stagnated at about 2 million b/d in recent years because of declining output at mature fields in the Campos Basin and maintenance shutdowns at aging offshore platforms. Critics attribute Petrobras' inability to meet its production targets to government meddling and Workers' Party policies that have left the company wallowing in debt.
The subsalt discoveries were made while Luiz Inacio Lula da Silva, Rousseff's mentor and predecessor, was president in 2007. The finds caused the Workers' Party to overhaul Brazil's oil regulations to give the state greater control over oil via a new production-sharing regime.
The government's share of oil is expected to fund improvements in health care and education, while strict requirements to use locally produced goods and services are expected to use development of the oil fields to create a robust oil-services industry. Oil companies, however, say the local content rules drive up costs and lead to delays when local suppliers are unable to meet delivery deadlines.
Rousseff has continued many of the policies of her predecessor, which led to a near-shutdown in oil exploration because the government refused to hold new sales of exploration and production concessions while the new oil regime was hammered out. After a five-year hiatus, Brazil's National Petroleum Agency was allowed to restart concession sales in May 2013. Industry officials recently asked for a return to annual rights sales to give oil companies better predictability in planning, but Mines and Energy Ministry officials declined the request.
In October 2013, Brazil also sold off the rights to develop the Libra subsalt field under new production-sharing agreements. While Libra is estimated to hold 8 billion-12 billion barrels of recoverable reserves, many oil majors such as ExxonMobil and Chevron declined to participate in the bidding because of new rules that require Petrobras to operate the field and hold at least a 30% stake.
FUEL SUBSIDIES A FINANCIAL DRAG ON PETROBRAS
Neves has responded by saying he'll open Brazil's oil industry to greater competition, potentially reducing Petrobras' obligation to operate subsalt fields under the production-sharing regime and easing restrictions on using locally produced goods and services. The challenger has also been boisterous about ending government fuel subsidies that have saddled Petrobras with billions of dollars in additional debt needed for its investment program.
Petrobras has suffered multibillion-dollar losses because of a refining shortfall that caused the company to import hefty volumes of gasoline and diesel to meet growing domestic demand. But Brazil's government forces Petrobras to sell the two fuels at a loss in the domestic market because of concerns about inflation. While Petrobras said it seeks parity between domestic and international fuel prices, domestic gasoline prices are nearly 20% and diesel about 10% below international benchmarks.
Neves, however, faces a tough road to unseat Rousseff. In every pre-election poll involving a second-round runoff between Neves and Rousseff, Rousseff emerged victorious. That could mean more disappointment for Petrobras investors hoping for a turnaround at the company, analysts said.
"Rousseff's track record as an economic populist creates doubt as to how quickly she would move to raise fuel prices, even if she gains more room to maneuver in her second [and last] term," Raymond James analyst Pavel Molchanov said in a research report Monday.
London (Platts)--6Oct2014/752 am EDT/1152 GMT
Strength in the FOB Amsterdam Rotterdam 10 ppm premium unleaded gasoline barges has persisted throughout the end of September and beginning of October on a tight components market and a steep backwardation in the overall gasoline complex, bringing the premium of the finished-grade 10 ppm barges to the Eurobob blendstock to historically high values in recent weeks.
On Friday, the 10 ppm premium unleaded gasoline -- a finished grade -- was assessed at a $47.25/mt premium to EBOB barges, a blendstock. The premium was up by $2/mt on the day.
The 10 ppm barges market hit a record-high premium of $51.50/mt on September 25, 2014.
The last time the 10 ppm premium unleaded gasoline barges were assessed at a similar spread to the EBOB barges was Q4 2012, with the premium peaking at $51/mt on December 27 that year.
Market sources attributed the current strength in the product to a steep backwardation in the overall Northwest European gasoline complex, driven by general tightness due to refinery maintenance season.
Demand is also often sporadic for premium unleaded gasoline, meaning that traders are currently not blending the product in large quantities because of a desire to keep tanks fairly empty due to the backwardation in the market.
"Given the market structure, you don't want to dedicate a whole tank to blending the grade," said one trader.
"People have not got oil in tank right now and especially not of this grade," said a second trader.
The balance-month/front-month gasoline swap spread was assessed at its monthly high of $37.25/mt Friday, pointing to a steep backwardation in the market.
Refinery maintenance season also boosted prices in the components market, with premiums of the key octane boosters seen rebounding in recent days.
"The components market is tight. Nothing is being shown apart from naphtha," said a gasoline trading source.
"There is not a lot of octane out there," said another trading source.
Caracas (Platts)--3Oct2014/509 pm EDT/2109 GMT
The average price of Venezuela's oil basket fell 76 cents/barrel to $85.89/b for the week of September 29-October 3, the country's Oil and Mining Ministry said Friday.
The prices of the country's main crude grades continued to fall, affected mainly by signals of a slowdown in the global economy and abundant supply of crude oil in the market, the ministry said. The monthly average for September was $89.27/b, compared with $103.75/b in September 2013. The monthly average for October is $85.89 /b, compared with $97.31/b in October 2013, the ministry said.
The year-to-date average fell to $95.29/b in the most recent week from $96.23/b a week earlier.
The basket price is an average of 70% crude oil (light, medium and heavy) and 30% refined products. The crude oil includes the Bachaquero, Boscan, Laguna, Merey, Mesa 30, Santa Barbara and Leona 24 grades. The refined products include asphalt, gasoil, gasoline, jet fuel, naphtha and residual fuel.
Kiev (Platts)--6Oct2014/850 am EDT/1250 GMT
Ukraine's consumption of natural gas over the January-August period decreased by 15.5% year-on-year to 27.34 billion cubic meters, down from 32.36 Bcm consumed in the same period last year, the energy and coal industry ministry said Monday.
In August, Ukraine consumed 1.34 Bcm of gas, down from 1.95 Bcm in August 2013 and from 1.35 Bcm consumed in July, the ministry said.
Ukraine is seeking to reduce consumption of natural gas after Russia, its main supplier, completely cut supplies to the country on June 16, citing price and debt payment disagreements.
The move forced Ukraine to rely on domestically extracted gas and imports from Europe.
In August, Ukraine imported about 400 million cu m of gas, down from 2.86 Bcm imported in August 2013, but up from 221 million cu m in July.
In the first eight months of 2014, Ukraine imported 15.13 Bcm of gas, down 1.2% year-on-year.
In August, Ukraine also produced 1.68 Bcm of natural gas, up 3.6% year-on-year. In January-August gas extraction increased 2.5% year-on-year to 13.19 Bcm, the ministry said.
Ukraine is preparing to survive the upcoming winter without Russian gas supplies and plans to store up to 17.2 Bcm of gas by October 15 to ensure steady Russian gas supplies to Europe in the winter. As of October 4, Ukraine had accumulated 16.7 Bcm in its storage facilities.
Russia supplies almost a third of the EU's energy needs, with more than half of its supplies crossing Ukrainian territory.
Ukraine's overall transit of Russian natural gas for exports decreased 14.9% year-on-year, or by 8.12 Bcm, to 46.32 Bcm in January-August, down from 54.44 Bcm shipped a year ago.
In August, Ukraine shipped 4.54 Bcm of gas through its pipelines for exports, down from 7.31 Bcm in August 2013 and down from 5.21 Bcm in July, according to the ministry.
Dubai (Platts)--6Oct2014/730 am EDT/1130 GMT
The UK's BG Group has received a $350 million payment from the Egyptian government for past gas production, BG said Monday.
The payment follows a commitment by the new Egyptian government, headed by President Abdel-Fattah el-Sisi, to repay outstanding debts to international companies operating in Egypt's energy sector, in connection with which Cairo recently raised funds specifically to repay debts to oil and gas producers.
BG said its domestic receivables balance in Egypt had shrunk to about $1.2 billion following the recent payment.
"While the group has been impacted by the reduction of LNG exports from Egypt, the company continues to investigate options for increasing the supply of gas and is working with the government on resolving the outstanding receivable balance," it added.
Egyptian government debts resulting from delayed payments to international partners for their contractual shared output from oil and gas concessions mounted quickly following the country's 2011 revolution.
At the same time, Egypt was gripped by an energy crisis that threatened to spiral out of control under the post-revolutionary Islamist presidency of Mohammed Morsi.
After Sisi and the Egyptian military ousted Morsi in July 2013, disaster was averted in part by billions of dollars in financial assistance and fuel donations from Saudi Arabia, the UAE and Kuwait, which quickly emerged as determined allied of the Sisi-led government.
Nonetheless, Sisi's administration has diverted increasing volumes of Egypt's offshore gas production to the country's subsidized domestic market, which was previously supplied to a large extent from onshore gas fields, reducing the gas volumes previously supplied to the country's two Mediterranean coast LNG production and export facilities.
One of those plants, at Damietta, was mothballed in 2012.
The second, at Idku near Alexandria, has continued operating with sharply reduced gas supply.
The international companies most heavily affected by the combined effect of delayed government payments and lower average sales prices for their Egyptian gas production have been large offshore gas producers such as BG and BP, which had both agreed in principle to develop capital intensive deep-water gas projects in Mediterranean waters offshore Egypt's Nile Delta.
BG's Egyptian portfolio includes exploration, development and production licenses as well as as stake in the Idku LNG plant.
In 2013, Egypt contributed 18% of the group's total production.
London (Platts)--6Oct2014/520 pm EDT/2120 GMT
Some 11 vessels carrying an estimated 490,000 mt of diesel departed the US for Europe last week for arrival in October, Platts ship-tracking software cFlow showed Monday.
The week-on-week exports fell slightly from the previous week, which saw 13 vessels and 620,000 mt depart the US for Europe for October arrival.
Platts is currently tracking between 1.4-1.6 million mt of diesel for arrival into Europe during the first three weeks of the month, putting October on track to be higher than the 1.6-1.8 million mt that arrived during September.
A shorter-than-expected October preliminary loading program from the Baltic port of Primorsk combined with seasonal refinery maintenance have resulted in expectations of a tightly supplied market for much of the month, keeping values well supported in Europe.
Nine of the tankers setting out last week were Medium Range vessels, with two Long Range range tankers making up the balance.
Eight of the cargoes are currently headed for destinations in Northwest Europe including ports in Belgium, France, the Netherlands and the UK, with two cargoes headed for Lavera, France and one cargo headed for Ashkelon, Israel.
The 11 vessels tracked by Platts to arrive in Europe are:
Vessel Name, DWT, Region Departure, Destination
Nave Jupiter, 49999, New York (Bayonne), Rotterdam, Netherlands
Hafnia Atlantic, 45395, Port Arthur, Amsterdam, Netherlands
Torm Arawa, 49999, Garyville, Lavera, France
Amazon Virtue, 72412, Norco, Antwerp, Belgium
Glenda Melissa, 47203, Norco, Pembroke, UK
Mesaieed, 106075, Brownsville, Lavera, France
Unique Harmony, 50471, New Haven, Rotterdam, Netherlands
Apollon, 53148, New York (Bayonne), Rotterdam, Netherlands
Maersk Maya, 47401, New York (Bayonne,) Rotterdam, Netherlands
Overseas Myknonos, 51711, Corpus Christi, Ashkelon, Israel
Stena Conquest, 47136, Portland, Humber, UK
Romanian authorities have halted the production and frozen the assets of an oil refinery owned by major Russian crude producer Lukoil, following tax evasion and money laundering allegations. The company is awaiting the results of an appeal.
The move by Bucharest to effectively shut down Petrotel oil refinery – which is owned by Lukoil – is jeopardizing the company's 15 years of operations in the country, Russia's ambassador extraordinary and plenipotentiary to Romania, Oleg Malginov, said in a press statement. Lukoil is Russia's second-largest crude producer.
“The fact that production has been suspended amid the ongoing searches, jeopardizing the functioning of the whole Lukoil production chain in Romania, is a particular cause for concern,” Malginov said.
The company has about 300 petrol stations across the Balkan state.
The Russian diplomat highlighted that Lukoil has always fulfilled its obligations and complied with Romanian law, as well as regularly passed appropriate inspections, since taking over the refinery in 1998.
“Lukoil enterprises have always complied with instructions given to them. At the same time, I would like to underline that the enterprise has never been shut down during checks, and the production chain has never been interrupted,” the press statement reads.
Petrotel refinery, which processes 2.4 million tonnes of crude per year, said Monday that Romanian authorities confiscated raw materials, crude oil, and other products. The move comes after prosecutors announced last week a probe into suspected tax evasion and money laundering that allegedly resulted in 230 million euro (US$291 million) in damages.
“Following the seizure of [our] raw materials, crude and products by penal investigation authorities, the Petrotel-Lukoil refinery has halted production and commercial activity,” the refinery said in a statement.
Lukoil filed a court complaint over Romania’s decision, and announced that “the timing of the [production] restart will be announced after a court rules on our appeal.”
Oil Terminal SA, which does business with Lukoil, said in a statement that the Ploiesti Court of Appeals had notified it that the value of seized Lukoil products “in tanks, pipelines...being owned or under Oil Terminal custody amount to 1.039 billion lei ($297.9 million).”
On Monday, a report sent to the Romanian Stock Exchange confirmed authorities placed Petrotel’s raw material stocks under distrait. Representatives of Lukoil confirmed to RIA Novosti that the plant has been shut down.
Last Thursday, prosecutors conducted searches at Petrotel refinery and other firms belonging to Lukoil. Representatives from Lukoil said on Friday that the company provided the investigators with the requested financial documents, Romanian Insider reports. Petrotel-Lukoil sales in Romania reached $1.58 billion last year, while Lukoil Romania sales peaked at $1.42 billion in 2013, according to the Insider.
© Autonomous Nonprofit Organization “TV-Novosti”, 2005–2014. All rights reserved.
by Caitlin Morrison
The North Sea oil fields, where US group Apache is considering closing its operation
OIL AND gas operator Apache is looking at withdrawing from its North Sea fields and either selling them off as an individual asset or spinning its entire international business into a new company.
Steve Farris, the company’s chairman, chief executive and president, said: “Apache continues to evaluate the separation of its international business through capital markets or strategic transactions.”
However Apache yesterday denied reports that Goldman Sachs was looking for bidders. “I can categorically state that Goldman Sachs has not been hired to sell 100 per cent of Apache’s business in the North Sea,” a spokesman said.
The US firm is the third-largest oil producer in the North Sea, behind BP and Royal Dutch Shell, and is the owner of Forties, the UK’s largest oil field.
Meanwhile, Brent crude oil prices continued to fall, down 1.2 per cent by the end of Friday.
With Brent plunging to $94 per barrel, analysts at Goldman Sachs said their conviction in a $100 per barrel forecast for 2014 was “waning”.
Copyright © 2014 City A.M. Limite
Texas refinery props up US Saudi imports
6 Oct 2014, 10.00 pm GMT
Houston, 6 October (Argus) — Saudi Aramco has increasingly relied upon its joint venture refinery in Port Arthur, Texas — the largest in North America — to maintain crude export volumes to the US, according to federal import data.
The 600,000 b/d Motiva refinery in Port Arthur has increased its share of all Saudi imports to the US from 10pc in 2009 to nearly a quarter through the first seven months of 2014, according to the Energy Information Administration.
The increase coincides with completion of a massive expansion project increasing crude capacity by 325,000 b/d beginning in 2012. But the refinery expansion has also coincided with declining Saudi imports in other US refining regions, as new domestic production offers alternatives to the light, sour crudes dominating the Saudi shipments to the US.
Two companies have held Saudi imports to the US Atlantic coast and to the US west coast essentially flat over the same period. PBF Energy runs Saudi crudes in part for its base oils program at its 180,000 b/d refinery in Paulsboro, New Jersey, and was the only US Atlantic coast importer of the crude since taking over the refinery in 2011. Previous owner Valero was similarly the only importer of Saudi crudes to the US Atlantic coast for the preceding two years.
Chevron, meanwhile, dominates Saudi imports to the west coast for its 250,000 b/d refinery in Richmond, California. A fire at the refinery in August 2012 cut total Saudi imports to the west coast by more than half during repairs.
Saudi imports to the US Gulf coast have held steady even as the region pushes away light, sweet imports. Marathon Petroleum, which completed an ambitious expansion project at its now 522,000 b/d Garyville, Louisiana, refinery began consistently receiving more than 100,000 b/d of Saudi crude in 2011. Imports of the crude also returned in July to the 475,000 b/d refinery in Texas City, Texas, Marathon Petroleum acquired from BP in February 2013.
But the Motiva system, a joint venture of Saudi Aramco and Shell, has accounted for a growing percentage of regional imports. Saudi cargoes to the region averaged 1.3mn b/d in the first seven months of 2014, compared to 1mn b/d in the same period of 2009. Port Arthur alone accounted for 33pc of the US Gulf coast imports of Saudi crude in the first seven months of 2014, and 23pc of all Saudi imports to the US.
Copyright © 2014 Argus Media Ltd - www.ArgusMedia.com - All rights reserved.
Kuwait Petroleum cancels $1.4bn refinery investment
LONDON/AMSTERDAM, 14 hours, 22 minutes ago
Kuwait Petroleum International has cancelled a planned $1.4 billion investment in its 88,000 barrel per day (bpd) Rotterdam refinery and may sell it, a spokesman said, as Europe's refiners struggle with overcapacity and global competition.
"Now we have to look at all other options," spokesman Jan Maarten van der Steen said on Monday, adding that the company was talking to banks including HSBC about managing a possible sale
Converting the Europoort refinery to a storage terminal or closing it entirely are possibilities, he said, although adding that closure was "not the option anyone wants".
"It's also our intention to keep all personnel on board," he said. "We are working on a new collective labour agreement."
Van der Steen said the company hoped to make a preliminary decision by spring 2015, though emphasising that talks were in early stages.
Industry sources said the refinery would have a hard time finding a buyer, given its small size and competitive position relative to much larger refineries in the Rotterdam oil hub and elsewhere in the region.
A union source said that converting the plant into a terminal would cut the staff to about 80 from around 350.
The refinery has been up for sale before, including an abortive 2007 deal in which Lukoil was the rumoured buyer.
The aborted investment, which the company had dubbed "Project Orange", would have added a 38,000 bpd hydrocracker, a new vacuum unit and several storage tanks. – Reuters
A group of the world’s most powerful oil ministers will soon gather in Vienna to take arguably one of the most important decisions that could affect the still fragile world economy: whether to cut production of crude to defend prices at $100 (Dh367) per barrel, or keep open the spigots as winter looms among the biggest energy-consuming nations?
A sudden slump in the price of crude has exposed deep divisions within the Organisation of Petroleum Exporting Countries (Opec) ahead of its final scheduled meeting of the year next month to decide on how much oil to pump. Some members, led by Iran, have called for immediate action to stem the drop in oil prices, while Arab Gulf countries have so far argued that it could be another three months before it becomes clear whether the group should cut production for the first time since December 2008.
Whatever they decide, oil remains the lifeblood of the global economic system due to its direct impact on inflation and input prices. Brent crude — a global benchmark of oil drawn from 15 fields in the North Sea, dipped last week to multi-year lows below $92 per barrel as a perfect storm of a strong US dollar, oversupply in the system and declining demand shattered confidence in the market. Brent has tumbled 20 per cent in the last three months after touching $115 per barrel in June.
In the US — the world’s biggest consumer — crude for November delivery at one point last week dropped below the psychologically important $90 pricing level, raising fears that a prolonged slump could put many of America’s shale drillers out of business. Shale oil, which can cost up to $80 per barrel to produce, has spurred an energy revolution in the US, which has started to threaten the dominance of producers in the Middle East. However, at current price levels many of these new so called “tight oil” wells are approaching the point when they will soon become unprofitable.
Like the situation in the US, falling oil prices are also a double-edged sword for Britain’s economy and investors. Although George Osborne, the Chancellor, is less reliant on tax revenues from the North Sea than some of his predecessors, prices are approaching the point when many of the developments planned offshore west of Shetland by international oil companies could be placed on ice. A sharp drop-off in domestic oil production and associated tax receipts from the North Sea would give Mr Osborne an unwelcome hole to fill in the government’s public finances heading into next year’s general election. However, falling oil prices will help to keep inflation low. For Britain’s motorists the current declines have been good news that has trickled through to the price of petrol on forecourts. A litre of unleaded petrol in the UK has fallen a few pence over the past month to an average of 127.21p, a figure last seen in 2011, just before Osborne raised the value added tax on fuel to 20 pere cent, from 17.5 per cent.
Price rigging
All eyes are now firmly focused on the next move by Opec, which controls 60 per cent of the world’s oil reserves and about a third of daily physical supply. The group has been branded an unaccountable “cartel” by free-market critics in North America who claim its system of limiting production by setting an output ceiling and quotas is tantamount to price rigging. Although this is an accusation that the group’s secretariat which is based in Vienna strongly denies, its mostly unelected group of policymaking oil ministers undeniably pull the strings of the global energy industry in the same way that central bankers can control currencies.
Opec states have largely managed to maintain cohesion over the last decade as prices over $100 per barrel have enriched their economies and encouraged adherence to quotas. This consensus is now starting to break down, creating more uncertainty in the market and a potentially destabilising situation for the global economy.
Next month’s meeting promises to be the most tense held since the onset of the Arab Spring in 2010, with the Shiite faction of Iran and Iraq already appearing to line up against Saudi Arabia and the UAE. Iran’s Oil Minister Bijan Zanganeh has placed his cards on the table early by calling for Opec to urgently cut output to stem the sharp recent decline in prices, which threatens the Islamic Republic’s fragile economy after years of restrictive sanctions. According to research from Deutsche Bank, Iran has the highest fiscal break-even price for its budget at over $130 per barrel of Brent, compared with the UAE at around $70 per barrel and Saudi Arabia at about $90.
However, the Gulf’s Arab states are all sitting on huge cash piles that are held overseas through sovereign wealth funds and foreign currency assets that can be drawn upon to help them weather any short-term drop in oil export revenues. Iran, possibly supported by Iraq, will push hard for a change in Opec’s production targets at the meeting and a cut to its overall output by 500,000 barrels per day (bpd) from the 30 million bpd limit that it currently sets for members. The latest figures suggest that level has already been breached with Opec members perhaps pumping as much as 1 million bpd above the group’s agreed quota.
“
Zanganeh is at odds with his most powerful rival in Opec, Saudi Arabia’s influential oil minister, Ali Nuaimi, who has so far dismissed calls for an emergency meeting to be held ahead of November. Nevertheless, the kingdom has taken the precaution of trimming its own output and reducing the price of crude it offers to customers in Asia in an apparent move to defend its market share. According to Opec figures, Saudi Arabia cut its output over the summer by more than 400,000 bpd to 9.6m bpd.
Brief contraction
Although the kingdom’s dominant role in global oil markets is increasingly being challenged by the rise of US shale, Saudi retains its place as the swing producer due to the almost 3 million bpd of physical capacity it currently holds in reserve. Demand for crude normally spikes during the northern hemisphere’s winter season and some Opec officials have argued that the group should wait to see if there is a repeat of the “polar vortex” conditions that shut down the eastern seaboard of the US and led to a brief contraction in the country’s economy in the first quarter.
“
“
Saudi enjoys some of the lowest production costs, excluding capital expenditure on new projects, in the region of $2 per barrel, giving it a large margin to soak up a sudden drop-off in price. This compares with estimated production costs in the North Sea which are in the region of $50 per barrel, according to Oil & Gas UK figures. This leaves drillers offshore in Britain more susceptible to price fluctuations. To further complicate the forthcoming meeting, Arab Gulf states remain deeply suspicious of Iran as the leadership in Tehran edges towards a settlement with Western powers over its nuclear programme. An end to Tehran’s economic isolation could trigger the opening up of its oil industry to foreign investment, a move that would bring more crude on to an already flooded market.
Iran is currently producing around 3 million bpd of crude but it is thought with access to Western technology this figure could be easily doubled. Combined with Iraq, which aims to eventually increase production capacity to as much as 9 million bpd by the end of the decade, both countries could challenge the current dominant position of Saudi Arabia and the Arab Gulf states within Opec. The looming issue of global over-capacity has been further complicated by the sudden return to the market of light, sweet Libyan crude.
Exports from Es Sider have returned to levels of around 800,000 bpd over the last month, adding to the pressure on Brent. In the background is the surge in US shale oil production and the mounting pressure on President Barack Obama to lift the US crude export ban that has been in place since the 1970s to guarantee America’s energy security. Fracking has helped the US achieve its highest oil production levels since 1986 over the last two months at a rate of 8.5 million bpd. The threat of a full lifting of the ban on exports has also helped the US to drive down the price and potentially cripple the Russian economy. Moscow is largely dependent on crude sales for foreign currency earnings and oil trading at around $80 per barrel for a period of months could bring the country to its knees. Indeed, losing market share to shale drillers in the US and the potential growth of unconventional oil and gas in other regions is a risk that traditional Opec producers are increasingly having to confront. Recent data from the US Department of Energy has revealed that Nigeria, also a member of Opec, has dropped out of the list of countries supplying America with oil. According to Deutsche Bank analysis “tight oil” in North America would be unlikely to attract investment at a cost of $90 per barrel, close to its current levels.
US responsibility
Certain members of Opec are also keen to see countries like the US take more responsibility for maintaining price stability instead of solely focusing on increasing production. The German investment bank estimates that if Opec fails to cut production in response to the current trend in falling oil prices then around 9 per cent of US “tight oil” output would be immediately rendered uneconomic at a level of $90 per barrel. This figure would rise to 39 per cent should prices slump as low as $80 per barrel.
However, some officials within the group already believe that the US should itself shoulder some of the burden.
“
On the demand side, a number of leading energy think tanks have recently revised their estimates for demand based on the unexpected slowdown of the Chinese economy in the second half of the year. These worries escalated in August with the latest data showing a slowdown in industrial production in the world’s second-largest economy. China has picked up much of the slack as the US has moved over the last five years to reduce its dependence on Middle East oil and a longer term slowdown could trigger Opec nations to slash output aggressively to defend prices. Beijing is now viewed by many Gulf oil producers as a more important energy trading partner than the US, which has been the traditional focus since the end of the Second World War.
The International Energy Agency — the world’s top oil watchdog — revised down in September its forecast for demand for both 2014 and 2015 in response to China’s sudden slowing. The Paris-based group cut 900,000 bpd from demand growth this year and 1.2 million bpd from its forecast in 2015, when it expects the total global draw on oil to be in the region of 93.8 million bpd. To complicate the decision that Opec oil ministers face in November, the region is now confronted by the sinister rise of the Islamic State jihadists in northern Iraq and a bitter row between some of its Arab Gulf members over the support of extremists. In Iraq and Syria, the group, known as Isil, is itself thought to be profiting from the sale of oil to the tune of $2 million a day. Given that Gulf states have pulled in the major powers led by the US and the UK into taking military action against Isil they may feel obliged to keep pumping at current rates, at least while Western forces carry out strikes and destroy the biggest single threat to their own borders.
“
Albawaba Business
FORGET QE, surely the precipitous oil price decline in the last couple of weeks will finally give the down-trodden European economy the big boost it needs. After three years of prices north of $100 a barrel, surely a big cut in Europe’s energy bill will provide a stimulus effect that Mario Draghi could only dream of? I’m afraid not. It appears there will be no energy-induced bonanza as, like many other peculiar aspects of Europe’s economy, consumers will hardly see the benefits of market falls in commodity prices.
The likes of Opec are only getting circa $90 per barrel for their oil nowadays, compared with around $107 per barrel as recently as June this year. So you could be forgiven for thinking that, if the producers are getting less bang per barrel, then the consuming nations of Europe would be a major beneficiary. That’s not quite the case.
Yes, the headlines talk of a “couple of pence per litre” off pump prices, but the major benefits will never come our way in Europe. Why? Europe is overwhelmed by taxation, subsidy, over-capacity and green incentivisation plans that have conspired to make hydrocarbons a dirty and expensive source of energy.
Germany, Europe’s biggest economy, is at the heart of the issue in its noble pursuit to reduce greenhouse gases. It’s a great ambition, but stunningly expensive. By 2050, the Germans want to have 60 per cent of their energy coming from renewables. This will be an impressive feat but may well seriously dent European competitiveness further.
Daniel Lacalle of Ecofin is worried, pointing out on SquawkBox Europe: “Since the beginning of the crisis in 2008, average European power prices are up 38 per cent, whereas wholesale prices have actually fallen. The problem is that we don’t see any of the benefits in Europe of lower oil prices, as we subsidise too many energy industries. We have oversupply and subsidies.
In addition, there are so many green taxes that gasoline prices have been going up instead of down.” According to Lacalle, German SMEs are now paying twice the price for energy as their US counterparts.
Oil producers are also at pains to point out that it’s not their fault that pump prices are so high. For years, Opec has tried to blame governments in Europe and elsewhere for taking too large a slice of the overall price of gasoline. It has a lovely chart on its website gleefully showing that UK taxes on a litre of oil equate to around 58 per cent of the total price (2013 data). In Italy, the figure is around 55 per cent, in Germany over 50 per cent. Compare this to the US, where taxes account for only 14 per cent.
So yes, we can all celebrate the oil price slump as a boost for many parts of the world economy. But for European industry and consumers, the gains will be limited at best.
Steve Sedgwick is an anchor on CNBC.
Copyright © 2014 City A.M. Limited
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Rex Tillerson, ExxonMobil’s CEO, says the ban on exports of U.S. crude oil that’s been in effect for decades is no longer necessary and a lifting of regulatory constraints on liquefied natural gas (LNG) would increase America’s energy and employment security.
“In the current debates about LNG and crude oil exports,” Tillerson told a business group in Houston on Oct. 2, “economists and leaders from across the political spectrum, from all sides, agree that free trade would lead to increased investment, more jobs and, importantly, increased production.
“Allowing the marketplace to determine the viability of energy exports or other infrastructure projects, as opposed to making decisions based on political calculus, is the proper course of action,” Tillerson said. “Government is especially well positioned to play a positive role by opening up markets, strengthening international ties and promoting free trade.”
Dozens of companies already are prepared to export a very light form of crude called condensate, as well as LNG, at a time when progress in horizontal drilling and hydraulic fracturing, or fracking, has caused U.S. oil and gas production to swell to their highest levels in a quarter century.
During his remarks at a State of Energy event sponsored by the Greater Houston Partnership, Tillerson didn’t explicitly take a position on the ban on crude exports, which grew out of the oil shortages suffered by the United States in the 1970s, but stressed that it doesn’t reflect the abundance of indigenous oil that America enjoys today.
He did make clear his position in favor of the Keystone XL pipeline, which would ship crude from the tar sands of Canada’s Alberta province through the U.S. West and Midwest to oil ports on the Gulf of Mexico. Keystone XL is the subject of intense debate involving environmentalists, labor groups and the energy industry.
Keystone XL requires State Department approval because it would cross international boundaries, but the debate and political maneuvering has repeatedly delayed what Tillerson called necessary approval of the project, “preventing job creation.”
Even without help from Washington, Tillerson said, his company is doing its part to create jobs in the United States. He noted that ExxonMobil, the world’s largest publicly traded international oil company, recently began work on a multibillion-dollar expansion of its chemical manufacturing and refining complex in Baytown, Texas.
Not only will construction create 10,000 jobs in the building trades, he said, but economists have told him that the finished complex will mean 4,000 permanent jobs at the facility itself and in ancillary positions in and around Baytown.
While ExxonMobil’s headquarters are in Irving, Texas, outside Dallas, the company will employ fully 15,000 workers in and around Houston, including Baytown.
By Andy Tully of Oilprice.com
Weak links in Russia’s petroleum-refinery network and the Kremlin’s power play in Ukraine are shortchanging Central Asian petrol markets, importers complain. With alternatives expensive or unfeasible, and regional refining capacity severely limited, local energy executives are ruing Moscow’s traditional sway over the region’s petrol supply.
Simultaneous repairs at key Siberian refineries that supply Central Asia, along with a major accident in June, have caused a spike in petrol prices in Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, all of which source their fuel from Russia.
In Tajikistan, the price for 95-octane petrol produced at Gazprom’s Omsk refinery rose 38 percent this summer. In Kyrgyzstan, which is 100-percent dependent on Russian fuel imports, the price edged up steadily all summer, and then jumped 5 percent in some parts of the country during the second week of September alone. In Kazakhstan, where local refineries only meet two-thirds of domestic needs, petrol rationing is likely to continue for the foreseeable future, officials say.
The Ukraine crisis appears to have played a role in the shortages. Russian exports to Ukraine of finished fuel products (including petrol, diesel and bitumen) rose 150 percent during the first half of 2014 against the same period in 2013, according to the RBK Daily. On September 16, Kazakhstan’s Deputy Energy Minister Uzakbai Karabalin partially blamed Russia’s commitments to supply newly annexed Crimea for causing Central Asian shortages. And Ukrainian hackers claimed on September 26 to be in possession of documents that detail, among other things, plans for Moscow to supply fuel to pro-Russia separatists in eastern Ukraine.
The shortages are highlighting the shortcomings of Russian infrastructure: Even though energy-giant Russia produces 10 million barrels of crude a day in a good year, it cannot meet the combined burden of domestic demand and promises to its allies. Andrew Neff, senior energy analyst at IHS Global Insight in London, notes that “Russian refineries in general are in need of upgrading,” with many tailored to supply heavy fuel oil to the military-industrial complex, rather than gasoline to everyday consumers. Tax incentives to encourage refiners to refocus production “haven’t been as successful as hoped,” Neff added.
Generally, Russia’s fuel-production facilities tend to undergo scheduled repairs in the spring and summer, due to the impracticalities of renovation in the freezing winter. But petrol consumption also tends to rise in the summer, when people are more mobile.
“In separate regions of Russia there is a fuel deficit,” says Igor Yushkov, an analyst at the National Energy Security Fund, a Moscow consultancy, adding that he expects production to recover this fall. Supplies to Central Asia may have suffered due to “seasonal repairs.”
“The repair schedule of every refinery is different, and different refineries are at different stages of modernization,” Yishkov said.
Russia’s Energy Ministry refused to comment by telephone when EurasiaNet.org asked why these critical refineries are undergoing repairs at the same time.
Another factor in the shortages was a June 17 explosion at the Achinsk refinery in eastern Siberia, which killed seven workers and took a facility producing 7 million tons of refined fuel annually out of production.
Demand for petrol in Ukraine – in particular in areas dominated by pro-Russian separatists, and Russia-annexed Crimea -- has risen sharply. The International Energy Agency reported that, prior to 2012, Ukraine tended to refine the bulk of its crude at domestic refineries. But that sector has been brought to a near standstill due to low profit margins, according to Neff of IHS. Kremlin-linked oil giant Rosneft had planned to restore an idle 8-million-ton-capacity refinery in Lugansk Oblast by the end of this year, but the facility was partly destroyed in fighting between the Ukrainian military and Russian-backed separatists in July.
“The crisis [in Ukraine] has further worsened the [domestic] refining sector,” says Neff, stimulating demand for imported petrol. Shortly after former Ukrainian President Viktor Yanukovych’s February ouster, “there were various stories of Yanukovych-connected oligarchs getting rich quick on the import of cheap oil products from Belarus and Russia. No doubt this is still happening in the current crisis, just with different players,” Neff told EurasiaNet.org via email, referring to separatists opposed to the Kyiv government.
With Russian refining capacities seemingly stretched to their limits, Kazakhstan, Kyrgyzstan and Tajikistan have all called on China to help improve domestic refining capacity. Chinese companies have already built one refinery with a projected capacity of 800,000 tons per year in Kyrgyzstan, and plan to complete a 1.1-million-ton facility in the Tajik president’s hometown by 2017. Kazakhstan’s TengriNews reported in May that Beijing would invest $1 billion to upgrade an 8-million-ton refinery in Shymkent.
In a development that has outraged Kyrgyz MPs, it appears most of the petrol refined at the Chinese facility in Kyrgyzstan – which has limited reserves of crude, but is producing at partial capacity – is reportedly going toward easing Tajikistan’s petrol crisis, and further south to Afghanistan.
In an interview with the Kyrgyz newspaper Vechernii Bishkek on September 26, the refinery’s director Andrei Yu Shan Lin said the Chinese company that operates the facility is not to blame. “We have an agreement to supply local [Kyrgyz] companies. How they distribute what we sell is not something we have knowledge of,” he told the paper.
by Chris Rickleton
(Source: www.eurasianet.org)
Over the last few years, stock in the Brazilian state-controlled oil company Petroleo Brasileiro S.A., or Petrobras (PBR), has confounded those who track traditional measures of valuation. The stock has remained stubbornly low in terms of price-to-earnings-ratio (P/E), and even after rallying over the last few days, remains at less than seven times the next 12 months’ projected earnings.
As is so often the case with things that frustrate investors, much of the blame for this can be placed at the feet of politics and politicians. Those same factors, however, are likely to give Petrobras stock a significant boost in the next few months.
Petrobras, as a state controlled company, is understandably enormously influenced by shifts in power within Brazilian politics, as evidenced by the stock’s performance over the last two months.
Petrobras Chart
Figure 1: PBR 2 Months. Chart from VectorVest
It will come as no surprise to anybody that in political terms, big money around the globe tends to lean to the right. Thus, in the run up to Brazil’s presidential elections, as leftist incumbent Dilma Rousseff of the Workers’ Party faced a battle for re-election, stock in PBR began to rise in the expectation -- or rather the hope -- that she could be replaced by Aécio Neves of the pro-business Social Democratic Party. When third party challenger Marina Silva took the lead in the polls, however, things quickly reversed.
However desirable, from a global perspective, you might find the prospect of a president of a large nation having roots in the environmental movement, it isn’t hard to see that such an election could hinder the profitability of a state-run oil company.
On Oct. 5, Brazilians went to the polls and Marina Silva all but disappeared from view. The result, with Rousseff winning 41.4 percent of the vote and Neves 33.7 percent, was close enough to force a run-off.
Given that result, it is hard to envisage how Brazilian politics can remain a drag on Petrobras stock, either in the run-up to the poll on Oct. 26 or shortly thereafter. The opposite is far more likely.
It seems likely that Rousseff will be re-elected. While some of Silva’s support undoubtedly came from an “anybody but the incumbent” sentiment, it is unlikely that those who voted for a candidate who essentially challenged the president from the left will switch to a challenger on the right.
From the point of view of the effect on Petrobras, however, who actually wins is now less important than it once was. It will be obvious that economic, rather than social, issues are at the forefront of voters’ minds and unlocking the potential of an oil giant will be a priority of any president after the election.
Even if there is no immediate policy change towards a more pro-oil stance following the election, however, PBR will still recover. While big money dislikes the political left in general, it is uncertainty that really puts pressure on stocks. The Brazilian market may not have favored a Rousseff re-election, but don’t rule out a significant post-election rally based on the old adage, “Better the Devil you know than the Devil you don’t.”
Of course, politics wasn’t the only influence on Petrobras’ stock. Falling oil prices around the world, for example, have also contributed to recent weakness. All other things being equal, though, the biggest drag on PBR is now in the past, and the future for the stock looks bright.
By Martin Tillier of Oilprice.com
New York - October 06, 2014
While U.S. reliance on imported oil has fallen considerably in recent years, it remains a big factor for policymakers to consider when deciding whether to ease or eliminate government restrictions on exports of domestic crude oil, U.S. Energy Secretary Ernest Moniz said Sunday on Platts Energy Week.
"With regard to the oil export question, we are looking at that," Moniz said on the all-energy news and analysis program. "But a very important point that is just not emphasized is we remain a very large importer of oil."
Asked if the Obama administration is likely to lift oil export restrictions administratively or seek a statutory change from the U.S. Congress, Moniz said, "I think we can't say at this time. Again, we are going through an evaluation."
Moniz first publicly broached the topic at a Platts Global Energy Outlook Forum in New York in December, when he said some U.S. energy policies enacted amid oil and gas shortages in the 1970s deserve to be reviewed.
He reiterated that view during Sunday's interview, saying: "Let me reemphasize the core point that the energy markets of the world are very, very different today than they were in the late '70s, 35 years ago. So, to me it's not a stunning remark that in light of a different market, we should take a look across the board."
Moniz noted decisions by the U.S. Department of Commerce earlier this year allowing two oil producers to export an ultralight form of crude oil known as condensate. But Moniz, echoing statements from Commerce, said those decisions do not reflect a wholesale change in oil export policy.
"And I do again go back to the point that this is a case where we are importing millions of barrels [of oil] a day and will for some years," he said.
Moniz's remarks follow a U.S. Energy Information Administration (EIA) report that the share of total U.S. petroleum and other liquids consumption met by imports fell from 60% in 2005 to 32% in 2013. EIA, the statistical arm of the U.S. Department of Energy (DOE), expects the net import share to fall to 21% in 2015, which would be the lowest level since 1968.
Asked if politics or concerns over the impact on gasoline prices keep the administration from changing oil export policy, Moniz did not respond directly.
"There are debates on both sides of the argument," he said. "And I might say, if you look at Congress, it's not a partisan debate. In both parties, you see different points of view. The question really is the one of what will be the impact on markets, again in the context of our being major importers."
Moniz appeared on a special edition of Platts Energy Week, which also reported on his designation of Pulitzer Prize-winning author Daniel Yergin as the first recipient of the James R. Schlesinger Medal for Energy Security, named after the first U.S. energy secretary.
In an interview on the program, Yergin reiterated his call for U.S. oil exports, saying they would relieve the surplus of light, sweet crude oil in the U.S., the result of a boom in shale production, and help lower global oil prices.
But Yergin added that any change is unlikely to happen soon, "certainly not before this November election."
The U.S. is “actively looking” at issues that would inform its oil export policy and rules governing releases from the Strategic Petroleum Reserve, Energy Secretary Ernest Moniz said.
“The international energy markets clearly look very, very different from what they looked like in 1975,” Moniz, 69, said at the Council on Foreign Relations in New York today. “It’s worth a re-examination.”
With U.S. natural gas production at a record and oil and liquids output poised to surpass Russia this year, the Obama administration has been called upon to increase exports. Proponents say sending more energy overseas would help expand U.S. influence, while opponents want to ensure domestic businesses have access to cheap fuel.
Crude exports surged to a near-record after the Commerce Department in June expanded its definition of oil that can qualify for foreign sale. Such sales have been limited under a 1975 law in the wake of the Arab oil embargo.
“There has been no policy change in terms of crude oil exports,” Moniz said. “We are actively looking at the issues of the changed production profile, the changed nature of the oil being produced, the refinery situation, etc. There is consideration of that going on. If there are new policies called for, those will be considered.”
Moniz, a former physics professor at the Massachusetts Institute of Technology, took over as head of the Energy Department in May 2013. The department has 13,640 workers and 94,302 contract employees and is asking Congress for $27.9 billion to spend during the 2015 fiscal year.
Among the questions for the administration is the use of the strategic reserve, he said. “Are the rules of the petroleum reserve, for example, today the ones we should have in a very different oil market and certainly a very different oil production profile for the United States?” he asked.
